Pre-tax profits jumped 14.8% up to £155.5m. Sales were up 5.9% to £2.3bn, with like-for-like sales up by 2.1%.
The frozen food specialist also opened 20 new stores, creating 1,500 jobs.
"I am delighted to report yet another record result for Iceland" said Iceland chief executive Malcolm Walker. "This is the sixth consecutive year of growth that my colleagues and I have delivered since we returned to manage the business in February 2005.
"Our product offer, store standards, customer numbers and staff morale have all been transformed over this period, creating a highly profitable and cash-generative business that ended the year virtually free of debt."
Walker also revealed plans to open another 15 Iceland stores during 2011, and thanked staff for remaining loyal during the "period of uncertainty" caused by the ongoing sale of the chain by the Resolution Committee of Landsbanki.
"My colleagues and I will work constructively to bring this process to a satisfactory conclusion" he said. "Our own objective is to ensure Iceland has a strong, prosperous and independent future, and continues to serve its customers for many years to come."
Walker, who holds about 23% of the chain, is determined to win back the business he founded in 1970, and has the right to match any offer made for it. He currently has a bid of £1bn on the table, though analysts have suggested the chain - comprising 742 Iceland stores and 54 Cooltrader stores
- could go for between £1.5 and 2bn.